[Into the Stocks] LG EnSol, Earnings + North America Benefits Surge... Stock Price Up 48.5% in 100 Days

Q3 Operating Profit Turns Positive
Greater Expectations for Next Year's Performance
Top Beneficiary of IRA
Order Backlog Up 42.3% Compared to End of Last Year
70% of Current Order Backlog is North America Volume

[Asia Economy Reporter Hwang Yoon-joo] LG Energy Solution's stock price surged 48.5% in about 100 days. Benefiting from the Inflation Reduction Act (IRA), it is gaining momentum by strengthening its dominance in the North American market and raising expectations for improved earnings. In a situation where an economic recession has become a foregone conclusion, investor sentiment toward LG Energy Solution, which has solid performance, is expected to grow stronger.

According to the Korea Exchange on the 27th, LG Energy Solution's stock price rose sharply from 356,000 KRW on July 4 to 529,000 KRW the previous day, a 48.5% increase. During the same period, Samsung Electronics, the largest market cap company, rose only 4.0%. This contrasts with the KOSPI and KOSDAQ indices, which fell 2.2% and 5.4%, respectively. As of 9:18 a.m. on that day, LG Energy Solution was trading at 540,000 KRW, up 2.08% (11,000 KRW) from the previous day.

Foreign investors and institutions drove the stock price. From July 4 to the previous day, foreign investors and institutions net purchased 1.5988 trillion KRW and 82.9 billion KRW, respectively. In October alone, foreign investors and institutions bought 351.9 billion KRW and 133.2 billion KRW, respectively.

The reason foreign investors and institutions are showing strong interest is due to order momentum in the North American region and the resulting expectations for strong earnings. The previous day, LG Energy Solution announced that its operating profit for the third quarter turned positive at 521.9 billion KRW compared to the same period last year. This figure exceeded market consensus by 37%. Sales increased 90% to 7.65 trillion KRW.

By segment, electric vehicle (EV) battery sales reached 4.36 trillion KRW, a 65% increase from the previous quarter. Jeon Chang-hyun, a researcher at Daishin Securities, explained, "The increase in shipments and price hikes driven by demand recovery from major customers such as Volkswagen and GM led the overall performance," adding, "Profitability (OPM) is also estimated to have improved to 4.1%, up 3.8 percentage points from the previous quarter, due to higher operating rates and expanded price-cost (metal) spreads."

Energy storage system (ESS) sales are estimated to have turned profitable at 535 billion KRW compared to the previous quarter. Small cylindrical battery sales increased 31% from the previous quarter to 2.34 trillion KRW, reaffirming Tesla's steady demand.

[Image source=UPI Yonhap News]

The outlook for next year, when the IRA is implemented, is even better. This is because LG Energy Solution is investing most aggressively in the North American region, where the electric vehicle market is expected to grow the fastest. The compound annual growth rate (CAGR) of the North American electric vehicle market is expected to be 33% until 2030, higher than Europe (26%) and China (17%). LG Energy Solution's order backlog increased 42.3% from 260 trillion KRW at the end of last year to 370 trillion KRW currently. Seventy percent of the current order backlog is from North America, which is why it is seen as the biggest beneficiary of the IRA.

Kim Hyun-soo, a researcher at Hana Securities, said, "We are raising the 2024 EBITDA forecast by 12%," adding, "Considering the low electric vehicle penetration rate in the U.S. and the IRA electric vehicle subsidy effect, the growth rate of electric vehicle sales in the U.S., LG Energy Solution's major market, will be steeper than that of China from 2023 to 2025."

This content was produced with the assistance of AI translation services.